Credit reporting can seem like a mystery for consumers at times. Luckily, steps are now being taken to make sure you receive as much information as possible when applying for credit.
One such step is something called an adverse action notice. While it might sound ominous to receive one at first, it actually provides some great insight regarding your consumer report. Here’s why.
What is an adverse action notice?
If your application for credit, insurance, or employment is denied due to something on your consumer report, the creditor may be required to send you an “adverse action notice.” This notice explains why you were turned down.
However, since there are two laws governing adverse action notice requirements, what’s in the letter itself can vary.
First, there’s the adverse action notice dictated by the Fair Credit Reporting Act (FCRA). There’s also the adverse action notice dictated by the Equal Credit Opportunity Act (ECOA).
Here’s an abbreviated version of adverse action notice requirements as they pertain to each law. You can also check out Consumer Compliance Outlook for more detailed descriptions.
FCRA adverse action notice requirements
What is an FCRA adverse action notice? According to Consumer Compliance Outlook: “The FCRA’s requirements for adverse action notices apply only to consumer transactions and are designed to alert consumers that negative information was the basis for adverse action.”
Examples of consumer transactions include denial for credit, insurance, employment, government licenses or benefits, or rentals. You may also experience increased charges for everything just listed, or unfavorable changes to existing terms for them.
ECOA adverse action notice requirements
The ECOA adverse action notice takes effect when a credit application is denied. It also takes effect if a counteroffer on an application is refused by the consumer. Again, according to Consumer Compliance Outlook:
“Adverse action notices under the ECOA and Regulation B are designed to help consumers and businesses by providing transparency to the credit underwriting process and protecting against potential discrimination by requiring creditors to explain the reasons adverse action was taken.”
Additionally, it takes effect if an application to increase credit on an existing account is denied. But if a consumer withdraws their application or accepts a counteroffer, there is no adverse action notice requirement.
The most important thing to remember is this: the adverse action notice requirements under ECOA only apply to credit. Whereas the FCRA adverse action notice applies to credit and other types of applications, as listed above.
How to read your adverse action notice
An adverse action notice should be fairly straightforward. That’s because its main purpose is to tell you why you were denied for an application.
Therefore, there are requirements dictating what has to be on your notice when a credit reporting agency (CRA) sends you one. Below is a paraphrased version of the Federal Trade Comm Commission’s requirements:
- Name, address, and phone number of the CRA.
- Your credit score if it was used in the decision-making process.
- Statement explaining why the denial happened.
- Your right to a free copy of the credit report from the CRA.
- Your right to dispute the information on the report.
If you receive an adverse action notice from a CRA, make sure all of this is included. And remember, it’s your right to receive this information.
Improve your financial standing in 6 steps
Being denied on an application is frustrating.
But a notice of adverse action can actually be a good thing. It’s designed to enforce fair treatment of applicants and to empower you for improving your chances for approval the next time around.
So how can you turn what you’ve learned from an adverse action notice into future approval? Follow these six steps:
1. Get your credit report
Your credit report is a detailed list of your financial accounts provided by a credit reporting agency like Experian.
That’s why you should be given access to a free copy of your credit report when you get an adverse action notice. Make sure you follow the instructions on your notice to get your copy.
2. Fix any errors on your credit report
Believe it or not, credit reporting errors are common. This is one reason it’s so important to check yours after receiving an adverse action notice.
Read through your personal information and make sure it’s correct. Even one digit off of a social security number is a huge error. Then, make sure every account on the list is yours.
If you spot anything that’s incorrect, follow these steps immediately to dispute any errors.
3. Understand the factors playing into your credit score
Your credit score is calculated and based off of a variety of factors. But you don’t have to score perfectly on all points. Each factor is valued differently. That’s why your score comes in a range.
What’s more, we all have more than one credit score. Therefore, the following two steps focus on the two most important factors of your credit score.
4. Make all of your payments on time
Your payment history makes up more than 30 percent of your score. That means you can easily improve your score by making your payments on time.
Just make sure you make all of them on time. Even things like library fines or making late payments on cell phone bills, electric bills, etc., can show up on your report.
Also, keep in mind that a creditor can report you as delinquent as soon as 30 days after your payment is due. So if you don’t think you’ll be able to make your payments, talk to your creditor to see if you can come up with a new payment plan ASAP.
5. Focus on paying down debt
Credit utilization makes up 30 percent of your score. This is the amount of credit available to you versus the amount of debt you have.
So if you have a credit card with a $1,000 credit limit and a $500 balance, then that card has a 50 percent credit utilization. Ideally, you want to keep this at 30 percent or below.
6. Keep checking your credit report
Don’t just check your credit report once, do it annually.
The good new is you can get a free copy of your report from all three credit reporting bureaus once a year from annualcreditreport.com.
Then, stay on top of what’s on your credit report to make sure you never receive an adverse action notice due to errors on your report.
While it may not be pleasant to receive an adverse action notice, there is a plan of attack you can follow to overcome the challenges it present. Diligently follow these steps to stay on top of your accounts.
Then you will see improvement in your credit score and report – sooner than you might think.
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|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
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8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.75% – 16.24%1||$5,000 - $100,000|
|7.69% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|